Home Economy Merger norms for general insurance firms in a week

Merger norms for general insurance firms in a week

By IANS,

Chennai: A decision on the merger proposal of Royal Sundaram Alliance with Reliance General Insurance is likely soon with the industry watchdog set to announce its new norms on the matter for non-life insurance companies in a week’s time.

“We are in the process of finalising the norms for mergers and acquisitions in non-life sector as the Insurance Act provides only for the mergers of life insurance firms,” said Insurance Regulatory and Development Authority (IRDA) chriaman J. Hari Narayan.

“The guidelines will be released in a week,” Narayan told reporters on the margins of an insurance seminar here. “The banking regulator may have to be consulted if a bank is involved in the non-life insurance business.”

Asked specifically about the merger proposal of the city-based Royal Sundaram Alliance with Reliance General Insurance, the watchdog chief said: “We are studying the proposal. The merger norms have to be drafted.”

He said the regulator would have to be satisfied whether the merger of one insurer with another would make the resulting entity bigger and better. “What we see in the proposal is whether one plus one is more than two. There is no point if it is less than two.”

Royal Sundaram is a 74:26 joint venture between Sundaram Finance group and the Britain-based Royal Sun Alliance. As per the merger plans, the company will be a shareholder in the merged entity.

Sundaram Finance managing director T.T. Srinivasaraghavan had earlier told IANS that the group had not decided yet whether or not to exit the non-life joint venture. “We have not spoken to anybody about selling our stakes,” he said.

“I can’t say that about our partner. A stage has not been reached where we have to take a call to be present in or exit the insurance business.”

Now, with the plans for Reliance General Insurance taking over Royal Sundaram Alliance filed with the regulator, Sundaram Finance seems to have taken the final call but does not want to commit in public.

Sundaram Finance holds just a tad below the 50 percent stake and with group outfits, the total holding in the venture comes to 74 percent. The balance is held by the Royal Sun Alliance.

The merger, if and when it happens, will be the first in the domestic non-life insurance market that is witnessing newer entrants despite existing competition. It is not clear yet how the management control will be exercised in the merged entity.

According to officials at Royal Sundaram, the business is run under guidance from the foreign partner whereas the Reliance Anil Dhirubhai Ambani Group (ADAG) has the full management control on Reliance General Insurance.

Further, the Indian group believes in having the full operational control with itself in all its businesses. The Anil Ambani Group got into life insurance business in 2005 by acquiring another city-based company, AMP Sanmar Life Insurance.